It is the same underlying number as MRR, scaled up, and it exists mostly because investors and buyers think in years. Only genuinely recurring revenue belongs in it: subscriptions and contracted retainers, not project fees, not one-time implementation charges, not a large invoice you hope repeats. Multiplying a single strong month by twelve is the most common form of self-deception in early-stage reporting.
For a founder, ARR is useful for comparison and dangerous for planning. It flatters — $30,000 of MRR becomes "$360,000 ARR," which sounds like a different business — and it hides seasonality and churn inside a smooth annual figure. Use MRR to run the company month to month, and ARR when talking to people who benchmark in annual terms. If you run several ventures, resist reporting a combined ARR to yourself; it averages away the one that is quietly shrinking.
A concrete example: your MRR is $14,500, so ARR is $174,000. In the same year you also complete $60,000 of custom implementation work. It is tempting to call the business "$234,000 ARR." It is not — that project revenue may not exist next year. The correct statement is $174,000 of ARR plus $60,000 of non-recurring services, and the distinction is exactly what a buyer or investor will test first.